Wind Favoring Just Group: Is it Worth an Investment?
Just Group Thriving in UK Annuities Market Amid Higher Interest Rates and Regulatory Support
Just Group, a retirement products business based in the UK, has seen significant growth in recent years, particularly in its annuities business. Floated on the London Stock Exchange (LSE: JUST) in late 2013, the company's shares initially rose 35% above the initial public offering (IPO) price. Today, Just Group focuses solely on annuities.
The company's tangible net asset value (TNAV) has grown at a 16% compound annual growth rate (CAGR) from 2022 to 2024, with a forecasted 13% TNAV CAGR through 2028. Just Group aims for over a 12% return on equity, indicating attractive and sustainable growth prospects.
Just Group differentiates itself by selling only annuities within the UK. It uses an advanced pricing tool called Beacon, which is pre-loaded with data from over 350 defined benefit (DB) pension schemes. This tool accelerates sales, especially targeting smaller pension schemes.
Approximately 45% of new annuity funds are invested in illiquid credits, allowing Just Group to earn around 200 basis points above the risk-free rate. This supports paying policyholders an attractive spread (~30 basis points) over the risk-free rate, a strategy that works well in the current higher interest rate environment.
The bulk annuity market, especially in smaller deals, is expected to remain strong through the remainder of 2025, supporting Just Group’s transaction flow and growth. Industry-wide, annuities are benefiting from renewed interest due to rising rates and shifting advisor channels, with Registered Investment Advisors (RIAs) focused on high-net-worth clients representing a growing distribution channel.
Recent UK prudential regulatory reforms (Solvency UK) have made it easier for annuity providers to invest in productive, long-term assets, supporting higher returns. The insurance industry, including annuities providers, has committed to significant investments (£100 billion over a decade), with over £10 billion already invested in productive UK assets such as real estate and utilities.
However, Just Group's struggles came to a head in 2020-2021, when its shares fell below 40p and market confidence waned. In response, the company revised its long-term plan and outlined a new roadmap to return to growth. This included selling a significant portion of its lifetime mortgage portfolio to free up capital.
Just Group closed 129 BPA deals in 2024, giving it a 45% market share. The group earned an 8.7% margin on new business in 2023, and its dividend is expected to increase from just under 2% to 3.4%.
Just Group's investments include property, private credit, infrastructure, commercial real estate, social housing, and direct lending to small businesses. Despite having a much smaller share of the individual annuities market (around 12%), the company has big ambitions and saw a 34% increase in 2024 overall and 17% growth for Just.
The UK retirement savings market is dominated by established companies like Legal & General, Aviva, and Prudential. However, the average individual annuity rate has surged above 7.7%, the highest in more than a decade, which could potentially benefit Just Group in the future.
According to Lane, Clark & Peacock, the market for bulk-purchase annuities could reach £900 billion, with an average of £50 billion per annum agreed over the next ten to 12 years. Just Group's Beacon platform, which typically takes on schemes with less than £100 million in liabilities, could play a significant role in this market growth.
Just Group has also received clearance to restructure its capital model and raised £565 million in new equity and debt. The company's outlook is positive, with a strong focus on its specialized and innovative position in the UK annuities market, a favorable higher interest rate environment that enhances investment returns, and supportive regulatory changes enabling productive asset investments. These factors contribute to a positive outlook and significant growth potential in both the near and mid-term horizons.
- Just Group's investments include property, private credit, infrastructure, commercial real estate, social housing, and direct lending to small businesses, demonstrating a diversified approach towards personal-finance and finance.
- The company's focus on investing around 45% of new annuity funds in illiquid credits allows Just Group to earn around 200 basis points above the risk-free rate, indicating a strategic approach in the investment sector.
- With a 16% compound annual growth rate (CAGR) in tangible net asset value (TNAV) from 2022 to 2024, and a forecasted 13% TNAV CAGR through 2028, Just Group provides evidence of attractive and sustainable growth prospects in the UK's annuities market.
- The advent of Solvency UK regulatory reforms has made it easier for annuities providers like Just Group to invest in productive, long-term assets, propelling higher returns and boosting the company's standing in the market.
- In the data-and-cloud-computing and technology sector, Just Group leverages its advanced pricing tool, Beacon, which is pre-loaded with data from over 350 defined benefit (DB) pension schemes, accelerating sales andmathsfSeq tactically targeting smaller pension schemes.
